Glucocorticoids decrease the replication of cells of the osteoblastic lineage and the function of the osteoblast. However, under certain conditions, they enhance the differentiation of osteoblastic cells, an effect that appears contradictory to their inhibitory actions on cell function. In this study we examine the effects of cortisol on the proliferation, differentiation, and fate of osteoblastic enriched cells from 22-day-old fetal rat calvariae (osteoblastic cells) in the absence and presence of beta-glycerophosphate. In the absence of beta-glycerophosphate, there was a progressive accumulation of DNA and cells, which was impaired by cortisol. In the presence of beta-glycerophosphate, there was an initial accumulation of DNA and cells followed by a marked decline that was prevented by cortisol. Despite the sustained number of cells, cortisol did not affect their mineralization, and inhibited Core binding factor a1 (Cbfa1), but not alkaline phosphatase, osteocalcin, or type I collagen transcripts. The decrease in cell number by cortisol observed in the absence of beta-glycerophosphate was due to a decrease in DNA synthesis, whereas the increase in cell number observed in the presence of beta-glycerophosphate was due to a relative increase in DNA synthesis and a decrease in apoptosis as determined by DNA fragmentation and acridine orange staining of the cells. This was correlated by a decrease in transcripts of proapoptotic genes and caspase 3 activity, and an increase of antiapoptotic genes. In conclusion, cortisol decreases the replication of cells of the osteoblastic lineage, but under conditions of differentiation/mineralization, cortisol prevents terminal differentiation of the cells and maintains an immature cell population.